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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-38662

 

SUTRO BIOPHARMA, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

47-0926186

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

111 Oyster Point Blvd,

South San Francisco, California

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 881-6500

Not Applicable:

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common stock, $0.001 par value

 

STRO

 

The Nasdaq Stock Market LLC

(Nasdaq Global Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 4, 2022, the registrant had 46,934,111 shares of common stock, $0.001 par value per share, outstanding.

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Balance Sheets

2

 

Condensed Statements of Operations

3

 

Condensed Statements of Comprehensive Loss

4

 

Condensed Statements of Stockholders’ Equity

5

 

Condensed Statements of Cash Flows

6

 

Notes to Unaudited Condensed Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

87

Item 3.

Defaults Upon Senior Securities

87

Item 4.

Mine Safety Disclosures

87

Item 5.

Other Information

87

Item 6.

Exhibits

88

Signatures

 

89

 

 

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Sutro Biopharma, Inc.

Condensed Balance Sheets

(In thousands, except share and per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,901

 

 

$

30,414

 

Marketable securities

 

 

142,500

 

 

 

130,343

 

Investment in equity securities

 

 

37,744

 

 

 

37,181

 

Accounts receivable

 

 

11,686

 

 

 

12,454

 

Prepaid expenses and other current assets

 

 

7,911

 

 

 

8,123

 

Total current assets

 

 

228,742

 

 

 

218,515

 

Property and equipment, net

 

 

23,285

 

 

 

22,550

 

Operating lease right-of-use assets

 

 

28,372

 

 

 

29,041

 

Marketable securities, non-current

 

 

20,699

 

 

 

68,775

 

Other non-current assets

 

 

1,705

 

 

 

1,655

 

Restricted cash

 

 

872

 

 

 

872

 

Total assets

 

$

303,675

 

 

$

341,408

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

10,705

 

 

$

11,327

 

Accrued compensation

 

 

5,408

 

 

 

11,417

 

Deferred revenue - current

 

 

6,279

 

 

 

5,496

 

Operating lease liability - current

 

 

1,078

 

 

 

1,037

 

Debt - current

 

 

12,500

 

 

 

9,375

 

Other current liabilities

 

 

2,790

 

 

 

3,084

 

Total current liabilities

 

 

38,760

 

 

 

41,736

 

Operating lease liability - non-current

 

 

31,634

 

 

 

31,224

 

Debt - non-current

 

 

12,762

 

 

 

15,738

 

Other noncurrent liabilities

 

 

147

 

 

 

146

 

Total liabilities

 

 

83,303

 

 

 

88,844

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value — 10,000,000 shares authorized
   as of March 31, 2022 and December 31, 2021;
0 shares issued and
   outstanding as of March 31, 2022 and December 31, 2021

 

 

-

 

 

 

-

 

Common stock, $0.001 par value — 300,000,000 shares authorized
   as of March 31, 2022 and December 31, 2021;
46,926,859 and
   
46,327,131 shares issued and outstanding as of March 31, 2022
   and December 31, 2021, respectively

 

 

47

 

 

 

46

 

Additional paid-in-capital

 

 

593,998

 

 

 

586,243

 

Accumulated other comprehensive loss

 

 

(1,152

)

 

 

(314

)

Accumulated deficit

 

 

(372,521

)

 

 

(333,411

)

Total stockholders’ equity

 

 

220,372

 

 

 

252,564

 

Total Liabilities and Stockholders’ Equity

 

$

303,675

 

 

$

341,408

 

 

See accompanying notes to unaudited interim condensed financial statements.

2


 

Sutro Biopharma, Inc.

Condensed Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2022

 

 

2021

 

 

Revenues

 

$

5,897

 

 

$

14,660

 

 

Operating expenses

 

 

 

 

 

 

 

Research and development

 

 

29,990

 

 

 

22,562

 

 

General and administrative

 

 

15,039

 

 

 

11,107

 

 

Total operating expenses

 

 

45,029

 

 

 

33,669

 

 

Loss from operations

 

 

(39,132

)

 

 

(19,009

)

 

Interest income

 

 

116

 

 

 

197

 

 

Unrealized gain (loss) on equity securities

 

 

563

 

 

 

(10,689

)

 

Interest and other expense, net

 

 

(657

)

 

 

(858

)

 

Net loss

 

$

(39,110

)

 

$

(30,359

)

 

Net loss per share, basic and diluted

 

$

(0.84

)

 

$

(0.66

)

 

Weighted-average shares used in computing
   basic and diluted loss per share

 

 

46,499,602

 

 

 

45,907,590

 

 

 

See accompanying notes to unaudited interim condensed financial statements.

3


 

Sutro Biopharma, Inc.

Condensed Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(39,110

)

 

$

(30,359

)

Other comprehensive loss:

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

 

(838

)

 

 

(129

)

Comprehensive loss

 

$

(39,948

)

 

$

(30,488

)

 

See accompanying notes to unaudited interim condensed financial statements.

4


 

Sutro Biopharma, Inc.

Condensed Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In-

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2021

 

 

46,327,131

 

 

$

46

 

 

$

586,243

 

 

$

(314

)

 

$

(333,411

)

 

$

252,564

 

Exercise of common stock options

 

 

32,497

 

 

 

 

 

 

180

 

 

 

 

 

 

 

 

 

180

 

Issuance of common stock under
   Employee Stock Purchase Plan

 

 

146,165

 

 

 

 

 

 

1,006

 

 

 

 

 

 

 

 

 

1,006

 

Vesting of restricted stock units

 

 

465,731

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Stock transaction associated with taxes
   withheld on restricted stock units

 

 

(44,665

)

 

 

 

 

 

(404

)

 

 

 

 

 

 

 

 

(404

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

6,974

 

 

 

 

 

 

 

 

 

6,974

 

Net unrealized loss on available-for-
   sale securities

 

 

 

 

 

 

 

 

 

 

 

(838

)

 

 

 

 

 

(838

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(39,110

)

 

 

(39,110

)

Balances at March 31, 2022

 

 

46,926,859

 

 

$

47

 

 

$

593,998

 

 

$

(1,152

)

 

$

(372,521

)

 

$

220,372

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In-

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2020

 

 

45,752,116

 

 

$

46

 

 

$

559,746

 

 

$

129

 

 

$

(227,873

)

 

$

332,048

 

Exercise of common stock options

 

 

129,161

 

 

 

 

 

 

1,360

 

 

 

 

 

 

 

 

 

1,360

 

Issuance of common stock under
   Employee Stock Purchase Plan

 

 

93,346

 

 

 

 

 

 

873

 

 

 

 

 

 

 

 

 

873

 

Vesting of restricted stock units

 

 

147,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock transaction associated with taxes
   withheld on restricted stock units

 

 

(18,366

)

 

 

 

 

 

(407

)

 

 

 

 

 

 

 

 

(407

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,952

 

 

 

 

 

 

 

 

 

3,952

 

Net unrealized loss on available-for-
   sale securities

 

 

 

 

 

 

 

 

 

 

 

(129

)

 

 

 

 

 

(129

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,359

)

 

 

(30,359

)

Balances at March 31, 2021

 

 

46,103,606

 

 

$

46

 

 

$

565,524

 

 

$

 

 

$

(258,232

)

 

$

307,338

 

 

See accompanying notes to unaudited interim condensed financial statements.

5


 

Sutro Biopharma, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(39,110

)

 

$

(30,359

)

Adjustments to reconcile net loss to net cash used in
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,327

 

 

 

1,291

 

Amortization of premium on marketable securities

 

 

546

 

 

 

496

 

Stock-based compensation

 

 

6,974

 

 

 

3,952

 

Noncash lease expenses

 

 

669

 

 

 

1,190

 

Unrealized (gain) loss on equity securities

 

 

(563

)

 

 

10,689

 

Remeasurement of liability awards

 

 

2

 

 

 

(11

)

Other

 

 

123

 

 

 

39

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

768

 

 

 

(1,668

)

Prepaid expenses and other assets

 

 

212

 

 

 

(3,382

)

Accounts payable

 

 

(1,132

)

 

 

(462

)

Accrued compensation

 

 

(6,009

)

 

 

(4,327

)

Other liabilities

 

 

(296

)

 

 

(267

)

Deferred revenue

 

 

783

 

 

 

(7,793

)

Change in operating lease liability

 

 

451

 

 

 

182

 

Net cash used in operating activities

 

 

(35,255

)

 

 

(30,430

)

Investing activities

 

 

 

 

 

 

Purchases of marketable securities

 

 

(10,994

)

 

 

(164,604

)

Maturities of marketable securities

 

 

28,109

 

 

 

40,250

 

Sales of marketable securities

 

 

17,420

 

 

 

5,000

 

Purchases of equipment and leasehold improvements

 

 

(1,553

)

 

 

(2,376

)

Net cash provided by (used in) investing activities

 

 

32,982

 

 

 

(121,730

)

Financing activities

 

 

 

 

 

 

Payment of issuance costs

 

 

(22

)

 

 

-

 

Proceeds from exercise of common stock options

 

 

180

 

 

 

1,360

 

Taxes paid related to net shares settlement of restricted stock units

 

 

(404

)

 

 

(407

)

Proceeds from employee stock purchase plan

 

 

1,006

 

 

 

873

 

Net cash provided by financing activities

 

 

760

 

 

 

1,826

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(1,513

)

 

 

(150,334

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

31,286

 

 

 

207,024

 

Cash, cash equivalents and restricted cash at end of period

 

$

29,773

 

 

$

56,690

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

504

 

 

$

331

 

Supplemental disclosure of non-cash investing and financing information:

 

 

 

 

 

 

Purchases of equipment included in accounts payable

 

$

881

 

 

$

809

 

Issuance costs included in accounts payable

 

$

28

 

 

$

 

Embedded interest associated with program fees

 

$

 

 

$

231

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited interim condensed financial statements.

6


 

Sutro Biopharma, Inc.

Notes to Unaudited Interim Condensed Financial Statements

1. Organization and Principal Activities

Description of Business

Sutro Biopharma, Inc. (the “Company”), is a clinical stage drug discovery, development and manufacturing company focused on deploying its proprietary integrated cell-free protein synthesis platform, XpressCF® and its site-specific conjugation platform, XpressCF+® to create a broad variety of optimally designed, next-generation protein therapeutics, initially for cancer. The Company was incorporated on April 21, 2003 and is headquartered in South San Francisco, California.

The Company operates in one business segment, the development of biopharmaceutical products.

Liquidity

The Company has incurred significant losses and has negative cash flows from operations. As of March 31, 2022, the Company had an accumulated deficit of $372.5 million. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development and other operational activities.

As of March 31, 2022, the Company had unrestricted cash, cash equivalents and marketable securities of $192.1 million, which is available to fund future operations. The Company will need to raise additional capital to support the completion of its research and development activities and to support its operations.

The Company believes that its unrestricted cash, cash equivalents and marketable securities as of March 31, 2022 will enable the Company to maintain its operations for a period of at least 12 months following the filing date of its financial statements.

2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying interim condensed financial statements of the Company are unaudited. These interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The December 31, 2021 condensed balance sheet was derived from the audited financial statements as of that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates on historical experience and market-specific or other relevant assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s condensed balance sheets and the amounts of expenses and income reported for each of the periods presented are affected by estimates and assumptions, which are used for, but are not limited to, determining research and development periods under collaboration arrangements, stock-based compensation expense, valuation of marketable securities, impairment of long-lived assets, income taxes and certain accrued liabilities. Actual results could differ from such estimates or assumptions.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including revenue, expenses, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it, as well as the economic impact on local, regional, national and international customers, suppliers, service providers and markets. The Company has made estimates of the impact of COVID-19 within its financial statements and there may be changes to those estimates in future periods. Actual results could differ from such estimates or assumptions.

7


 

The accompanying unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly the Company’s financial position, results of operations, comprehensive loss, and cash flows for the interim periods. The interim results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or for any other future annual or interim period.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the year ended December 31, 2021.

Impacts of Recently Adopted Accounting Pronouncements on 2021 Interim Reporting

On July 1, 2021, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), effective as of January 1, 2021. As a result, interim results for reporting periods beginning on or after January 1, 2021 will differ from amounts previously reported on the Company’s quarterly reports on Form 10-Q. The adoption of ASC 842 did not have a material impact on the Company’s condensed Statements of Operations and condensed Statements of Cash Flows.

Recent Accounting Pronouncements Not Yet Adopted

There were no new accounting pronouncements issued since our filing of the Annual Report on Form 10-K for the year ended December 31, 2021, which could have a significant effect on our condensed financial statements.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown in the condensed Statements of Cash Flows.

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

28,901

 

 

$

55,818

 

Restricted cash

 

 

872

 

 

 

872

 

Total cash, cash equivalents, and restricted cash shown in the
   condensed Statements of Cash Flows

 

$

29,773

 

 

$

56,690

 

Investments in Equity Securities

Vaxcyte common stock held by the Company is measured at fair value at each reporting period based on the closing price of Vaxcyte’s common stock on the last trading day of each reporting period, with any unrealized gains and losses recorded in the Company’s condensed Statements of Operations.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The Company determined the fair value of financial assets and liabilities using the fair value hierarchy that describes three levels of inputs that may be used to measure fair value, as follows:

Level 1—Quoted prices in active markets for identical assets and liabilities;

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

8


 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of accounts receivable, prepaid expenses, accounts payable, accrued liabilities and accrued compensation and benefits approximate fair value due to the short-term nature of these items.

The fair value of the Company’s outstanding loan (See Note 6) is estimated using the net present value of the payments, discounted at an interest rate that is consistent with market interest rate, which is a Level 2 input. The estimated fair value of the Company’s outstanding loan approximates the carrying amount, as the loan bears a floating rate that approximates the market interest rate.

Revenue Recognition

When the Company enters into collaboration agreements, it assesses whether the arrangements fall within the scope of ASC 808 (Collaborative Arrangements (ASC 808)), based on whether the arrangements involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. To the extent that the arrangement falls within the scope of ASC 808, the Company assesses whether the payments between the Company and its collaboration partner fall within the scope of other accounting literature. If it concludes that payments from the collaboration partner to the Company represent consideration from a customer, such as license fees and contract research and development activities, the Company accounts for those payments within the scope of ASC 606, Revenue from Contracts with Customers. However, if the Company concludes that its collaboration partner is not a customer for certain activities and associated payments, such as for certain collaborative research, development, manufacturing and commercial activities, the Company presents such payments as a reduction of research and development expense or general and administrative expense, based on where the Company presents the underlying expense.

The Company has no products approved for commercial sale and has not generated any revenue from commercial product sales. The total revenue to date has been generated principally from collaboration and license agreements and to a lesser extent, from manufacturing, supply and services and materials the Company provides to its collaboration partners.

Collaboration Revenue

The Company derives revenue from collaboration arrangements, under which the Company may grant licenses to its collaboration partners to further develop and commercialize its proprietary product candidates. The Company may also perform research and development activities under the collaboration agreements. Consideration under these contracts generally includes a nonrefundable upfront payment, development, regulatory and commercial milestones and other contingent payments, and royalties based on net sales of approved products. Additionally, the collaborations may provide options for the customer to acquire from the Company materials and reagents, clinical product supply or additional research and development services under separate agreements.

The Company assesses which activities in the collaboration agreements are considered distinct performance obligations that should be accounted for separately. The Company develops assumptions that require judgement to determine whether the license to the Company’s intellectual property is distinct from the research and development services or participation in activities under the collaboration agreements.

At the inception of each agreement, the Company determines the arrangement transaction price, which includes variable consideration, based on the assessment of the probability of achievement of future milestones and contingent payments and other potential consideration. The Company recognizes revenue over time by measuring its progress towards the complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the nature of the service promised to the customer.

For arrangements that include multiple performance obligations, the Company allocates the transaction price to the identified performance obligations based on the standalone selling price, or SSP, of each distinct performance obligation. In instances where SSP is not directly observable, the Company develops assumptions that require judgment to determine the SSP for each performance obligation identified in the contract. These key assumptions may include full-time equivalent, or FTE personnel effort, estimated costs, discount rates and probabilities of clinical development and regulatory success.

9


 

Upfront Payments: For collaboration arrangements that include a nonrefundable upfront payment, if the license fee and research and development services cannot be accounted for as separate performance obligations, the transaction price is deferred and recognized as revenue over the expected period of performance using a cost-based input methodology. The Company uses judgement to assess the pattern of delivery of the performance obligation. In addition, amounts paid in advance of services being rendered may result in an associated financing component to the upfront payment. Accordingly, the interest on such borrowing cost component will be recorded as interest expense and revenue, based on an appropriate borrowing rate applied to the value of services to be performed by the Company over the estimated service performance period.

License Grants: For collaboration arrangements that include a grant of a license to the Company’s intellectual property, the Company considers whether the license grant is distinct from the other performance obligations included in the arrangement. For licenses that are distinct, the Company recognizes revenues from nonrefundable, upfront payments and other consideration allocated to the license when the license term has begun and the Company has provided all necessary information regarding the underlying intellectual property to the customer, which generally occurs at or near the inception of the arrangement.

Milestone and Contingent Payments: At the inception of the arrangement and at each reporting date thereafter, the Company assesses whether it should include any milestone and contingent payments or other forms of variable consideration in the transaction price using the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty, the associated milestone value is included in the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Since milestone and contingent payments may become payable to the Company upon the initiation of a clinical study or filing for or receipt of regulatory approval, the Company reviews the relevant facts and circumstances to determine when the Company should update the transaction price, which may occur before the triggering event. When the Company updates the transaction price for milestone and contingent payments, the Company allocates the changes in the total transaction price to each performance obligation in the agreement on the same basis as the initial allocation. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment, which may result in recognizing revenue for previously satisfied performance obligations in such period. The Company’s collaborators generally pay milestones and contingent payments subsequent to achievement of the triggering event.

Research and Development Services: For amounts allocated to the Company’s research and development obligations in a collaboration arrangement, the Company recognizes revenue over time using a cost-based input methodology, representing the transfer of goods or services as activities are performed over the term of the agreement.

Materials Supply: The Company provides materials and reagents, clinical materials and services to certain of its collaborators under separate agreements. The consideration for such services is generally based on FTE personnel effort used to manufacture those materials reimbursed at an agreed upon rate in addition to agreed-upon pricing for the provided materials. The amounts billed are recognized as revenue as the performance obligations are met by the Company.

3. Fair Value Measurements

The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy:

 

 

 

March 31, 2022

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

28,358

 

 

$

28,358

 

 

$

-

 

 

$

-

 

Commercial paper

 

 

25,179

 

 

 

-

 

 

 

25,179

 

 

 

-

 

Corporate debt securities

 

 

49,511

 

 

 

-

 

 

 

49,511

 

 

 

-

 

Equity securities

 

 

37,744

 

 

 

37,744

 

 

 

-

 

 

 

-

 

Asset-backed securities

 

 

20,398

 

 

 

-

 

 

 

20,398

 

 

 

-

 

U.S. government securities

 

 

47,031

 

 

 

47,031

 

 

 

-

 

 

 

-

 

Supranational debt securities

 

 

21,079

 

 

 

-

 

 

 

21,079

 

 

 

-

 

Total

 

$

229,300

 

 

$

113,133

 

 

$

116,167

 

 

$

-